Essar Energy, the India-focussed and London-listed oil, gas and power arm of the Essar group, will be divesting its exploration and production (E&P) assets globally to raise funds for further growth.
While the new CEO of Essar Energy, Sushil Maroo, did not give any deadline for completing the process or the amount that the company would raise, he alluded to the fact that Essar Energy would look at exiting most of its non-core or non-performing assets in the near future.
?When I say non-core, I am mainly referring to the company’s E&P blocks in India and outside. We are looking at a few options, such as selling them, farming out or bringing in new partners, which would help the company in generating funds for further growth,? said Maroo while answering questions during a conference call after the announcement of the company’s results. However, he said the company will not exit its CBM operations under which it has access to one producing and four exploration blocks in India.
Apart from its CBM assets in India, Essar currently has one producing asset, called the Mehsana oil block, in Cambay basin with ONGC. It also has a development asset in Mumbai offshore, called Ratna and R-series. This is also with ONGC and a few international players with minority participating interest.
Apart from that, the company has exploration assets in Assam, Mumbai offshore and a block each in Nigeria, Vietnam, two in Madagascar and one in Indonesia.
The company had, in February 2013, farmed out 50% of its interest in the Vietnam block to energy major ENI.
In fact, in line with its strategy of exiting non-core assets, Essar had also decided to sell off its 50% stake in port-based Mombasa refinery in October, which is likely to fetch a paltry $5 million.
Maroo said Essar is ?very serious? about its coal bed methane (CBM) operations and will continue to focus on them. In fact, the company plans to complete the drilling programme of its Raniganj block in 12-15 months and reach a peak production of 3 million metric standard cubic metres per day (mmscmd) six months after that tentatively.
This will be the company’s first venture into CBM and sources claim it has already tied up customers for the gas at $4 per million metric British thermal units (mmBtu). Currently, the block is producing 100,000 mmscmd of gas from the currently drilled 170 wells. It plans to drill a total of 350 wells at the site.
While analysts are not giving too much value to the exiting of non-core assets, they say it?s a good sign that its domestic refining operations are improving.
?The robust refining operations have more than compensated the poor power operations of the company,? said an analyst. Also, since no major refinancing commitments are coming up in FY15, analysts are expecting a better year ahead.
Maroo said apart from selling non-core assets, his main objectives for the company are to dollarise its debt, increase optimisation of the Vadinar refinery through a new programme Optima Plus, and see bigger cotributions from retail operations as well.
?We expect the market for refined petroleum products in India to remain strong. Demand for diesel continues to increase at approximately 6-7% per year and gasoline at 4-5% per year. This balance may change once the ongoing initiative to remove diesel subsidies is complete,? said a company statement.
However, concerns on debt and financing costs still loom large on the company and analysts call that a major concern.